The approval of US spot Bitcoin exchange-traded funds (ETFs) was a major deal for many traditional investors, signalling Bitcoin’s growing maturity and acceptance as a mainstream asset class. Now, with strong inflows into these products, along with this year’s market rally and the upcoming halving event, it’s certainly an exciting period for the leading cryptocurrency.
Last month, we discussed the potential of Bitcoin spot ETFs, especially for institutional and professional investors and their ability to trigger a substantial inflow of funds into the crypto market. For this piece, we want to examine how they’ve been performing since the SEC’s approval on January 10th, 2024.
The anticipation leading up to the approvals was a major catalyst for the crypto market’s (and Bitcoin’s) strong performance last year, with financial leaders like BlackRock’s CEO Larry Fink publicly endorsing Bitcoin for its store of value properties.
Recent data has shown strong investments flowing into these ETF products, while leading fund managers in regions like Hong Kong and Singapore have announced plans to launch their own Bitcoin spot ETFs. At the same time, the market is also growing increasingly optimistic about a potential Ether spot ETF approval next quarter, which is likely to bring significant attention to the leading smart contract platform.
Bitcoin spot ETF performance post-launch
Since the SEC’s approval, eight ETFs have amassed 278,148 BTC, worth approximately USD 14.26 billion. BlackRock’s iShare’s (IBIT) led the inflows with 122,643 BTC, Fidelity (FBTC) with 87,557 BTC, followed by Ark/21 Shares (ARKB) and Bitwise (BITB), respectively.
Source: Sygnum Bank, The Block
The only outlier was Grayscale’s Bitcoin Trust (GBTC), having seen consecutive outflows with investors pulling more than USD 6.91 billion to date. A considerable part of these outflows can be attributed to the FTX bankruptcy estate liquidating nearly USD 1 billion of its shares in GBTC. But Grayscale’s fund was also trading at a substantial discount to Bitcoin’s price last year, up to 44 percent at some point, and this discount may have prompted many investors to sell their arbitrage positions as soon as Grayscale converted its trust into an ETF.
Another reason could be the shift towards ETFs offering far lower fees. Issuers like Invesco, BlackRock, Fidelity and Valkyrie lowered theirs to 0.25 percent, while Franklin Templeton’s EZBC set its fees at an even lower 0.19 percent. Such competitive pricing has proven effective, with VanEck’s recent decision to lower its fees from 0.25 to 0.2 percent resulting in a 22-fold increase in trading volume. Despite this, Grayscale has kept its fees at 1.5 percent. Further outflows are also expected after a recent court decision allowing bankrupt crypto lender Genesis to sell its USD 1.6 billion stake in GBTC in an effort to repay creditors.
The excitement around Bitcoin spot ETFs is not without good reason. Grayscale aside, Bitcoin spot ETFs have performed remarkably well, recording positive net inflows for 15 consecutive trading days, with over USD 5 billion in total net inflows as of today.
In the first few weeks, Bitcoin spot ETFs surpassed silver ETFs, becoming the second largest ETF commodity in terms of AUM. The total AUM for Bitcoin spot ETFs now sit at around USD 37.3 billion, or 728,552 BTC, compared to silver ETF’s USD 11.5 billion. Meanwhile, the top 14 gold ETFs have seen USD 2.4 billion in outflows since the beginning of the year, with gold prices falling by 3.4 percent compared to Bitcoin’s price which has risen by 23 percent.
Source: Sygnum Bank, Crypto ETFs.com
Leading fund managers in other regions like Hong Kong are planning to launch their own Bitcoin spot ETFs, while there is also growing anticipation that the SEC might approve BlackRock and Fidelity’s Ether spot ETFs by next quarter.
Downside risks
Even with all the excitement in recent weeks, crypto spot ETFs aren’t without their own setbacks. This includes things like management fees and of course limited trading hours that don’t quite sync with the 24/7 nature of the crypto market. Also, if the demand for ETF products continues to rise, this can lead to a large chunk of Bitcoins in the hands of a just a few entities – for perspective, Coinbase Custody now holds the keys to 90 percent of all Bitcoin ETF assets.
But another more important factor that doesn’t get enough attention is the potential dependency (perhaps unintentional) on the performance of Bitcoin spot ETFs, which may provoke frequent changes in market sentiment should they fail to pull in as much as some market analysts are suggesting (ranging from USD 10, 50, to 100 billion)
That said however Grayscale’s outflows have been steadily declining and are compensated by massive allocations to BlackRock‘s IBIT and Fidelity’s FBTC, and with last week alone saw a record US 2.4 billion in inflows into Bitcoin ETF products.
Concluding remarks
Bitcoin spot ETFs are essentially an institution’s long-term pledge to Bitcoin’s future growth potential, bringing confidence and fresh capital into an otherwise highly volatile yet exciting crypto market.
And, with several catalysts at play here, including the upcoming halving supporting Bitcoin’s core value proposition of immutable scarcity, it will be an interesting year to witness how Bitcoin’s fundamental drivers will encourage widespread adoption and establish its presence as a mainstream asset class.
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